Executive Summary / Key Takeaways

• Lesaka Technologies is strategically transforming into a leading integrated multi-product fintech platform in Southern Africa, driven by aggressive inorganic growth and a customer-centric approach to capitalize on the region's rapid digitization.
• The company has demonstrated consistent financial execution, meeting profitability guidance for 12 consecutive quarters, with FY2025 adjusted earnings per share growing substantially to ZAR 2.29 and FY2026 guidance projecting over 100% year-on-year growth to more than ZAR 4.60 per share.
• Key acquisitions like Adumo, Recharger, and the proposed Bank Zero are expanding its market reach across consumer, merchant, and enterprise segments, enhancing its proprietary technology stack, and are expected to significantly improve unit economics and reduce funding costs.
• Lesaka leverages its differentiated technology, including the UEPS system, Prism Switch, and Bonngwe platform, to offer secure, accessible, and efficient financial services, creating a competitive moat against traditional banks and specialized fintechs in underserved markets.
• While facing integration challenges, macroeconomic headwinds, and material weaknesses in internal controls, the company's strategic focus on operational efficiency, cross-selling, and a favorable regulatory environment positions it for sustained, profitable growth and market share expansion.

Forging a Digital Future: Lesaka's Integrated Fintech Vision

Lesaka Technologies, Inc. (NASDAQ:LSAK) is at the forefront of Southern Africa's digital transformation, strategically positioning itself as a dominant integrated multi-product fintech platform. Founded in 1989 as Net 1 UEPS Technologies, Inc., the company underwent a pivotal rebranding to Lesaka Technologies in May 2022, marking a new era of strategic acquisitions and a customer-centric approach. This evolution is driven by the profound secular trend of digitization in a region where cash remains pervasive, yet the demand for accessible and efficient financial services is rapidly accelerating. Lesaka's overarching strategy is to disrupt traditional banking models by offering a comprehensive suite of solutions tailored to the underserved consumer, micro-merchant, and small-to-medium merchant segments.

The addressable market in South Africa alone for Lesaka's existing products is estimated at over $4 billion in net revenue, with projections for this market to exceed $12 billion within five years through organic and inorganic expansion. This growth is fueled by a significant shift in market share from traditional banks, which are often constrained by legacy architecture and product-centric approaches, to agile fintech innovators. Globally, the proportion of the largest merchant acquirers that are banks has dramatically fallen from 97% in 2011 to 43% in 2022, a trajectory Lesaka anticipates will mirror in Southern Africa. As the leading independent fintech in the region, Lesaka aims to be at the vanguard of this transformation, targeting over 10% market share in the medium term.

Technological Edge and Innovation Roadmap

Lesaka's competitive advantage is deeply rooted in its differentiated technology and continuous innovation. The company's core offerings are underpinned by proprietary systems designed for security, accessibility, and efficiency in emerging markets.

The Universal Electronic Payment System (UEPS), though not explicitly detailed with quantitative performance metrics, is foundational to Lesaka's ability to process secure electronic payments, particularly for unbanked users. This technology is critical for enabling transactions in environments with limited traditional banking infrastructure, offering tangible benefits such as enhanced security and accessibility. These benefits foster stronger customer loyalty and recurring revenue streams in underserved markets, contributing to improved margins through efficient transaction processing and better capital efficiency by mitigating fraud risks.

Beyond its foundational payment systems, Lesaka is actively developing and deploying new technologies across its segments:

• Prism Switch and Prism HSM: In the Enterprise division, Lesaka launched its revitalized Prism Switch in June 2024, enhancing its go-to-market strategy and internalizing transaction flows. This proprietary payment switch, alongside Prism Hardware Security Modules (HSM), provides specialized high-end data security devices used in data centers for sensitive information processing, such as payment switching and PIN encryption. This unique expertise allows Lesaka to compete more effectively by offering robust, secure solutions to corporate and government clients, driving revenue from unit sales and annual maintenance contracts.
• Bonngwe Platform: For its Consumer division, Lesaka rolled out Bonngwe, a new sales front-end platform, to provide sales and service consultants with a comprehensive 360-degree view of each client. This platform significantly improves service delivery, streamlines cross-selling efforts for loans and insurance, and enhances the efficiency of attracting new EasyPay Everywhere (EPE) customers. The improved customer experience and operational efficiency directly contribute to increased ARPU and reduced customer churn.
• Enhanced Digital Channels: The company has rebuilt its USSD platform for the Consumer division, making it more reliable and user-friendly. This digital channel has seen exponential growth in usage, with over 60,000 loan applications processed via USSD in a single quarter, a 62% increase year-on-year. This innovation allows customers to access services digitally from anywhere, saving time and money, and demonstrating fintech's potential to significantly impact people's lives by reducing the need for physical branch visits and associated transport costs.
• Bank Zero's Technology Stack: The proposed acquisition of Bank Zero, a South African neobank, is a significant technological differentiator. Bank Zero possesses a modern, proprietary, and scalable technology stack with a highly efficient cost structure that relies on digital onboarding. This acquisition is expected to reduce Lesaka's dependencies on third-party banking partners, improve responsiveness to clients, increase service availability, and expand the range of customers it can address. Furthermore, Bank Zero is in the process of applying for an FX license, which could unlock cross-border opportunities for Lesaka's customers.

These technological advancements are not merely incremental improvements; they are strategic investments designed to deepen Lesaka's competitive moat, enhance its financial performance through higher margins and lower operational costs, and solidify its market positioning as a leader in inclusive fintech. By continuously innovating and integrating these technologies, Lesaka aims to deliver a truly differentiated value proposition that competes on value rather than just price, transforming unit economics and driving long-term growth.

Strategic Expansion and Operational Excellence

Lesaka's growth narrative is characterized by a dual strategy of organic expansion and disciplined inorganic acquisitions, all aimed at building an integrated multi-product platform. The company's history reflects this, from the foundational Connect Group acquisition in 2022 to recent transformative deals.

In October 2024, Lesaka completed the ZAR 1.7 billion acquisition of Adumo, South Africa's largest independent payments processor. This move significantly scaled Lesaka's merchant footprint, adding over 23,000 merchants and expanding its geographical presence into Namibia, Botswana, and Kenya. Adumo's GAAP hospitality platform, a leading provider of integrated point-of-sale software and hardware, now services over 9,600 sites, creating compelling cross-sell opportunities for bundled solutions including card acquiring, cash management, and lending. The integration of Adumo is a key focus for the Merchant division, aiming to streamline operations, unify brands under a single Lesaka identity, and enhance unit economics.

March 2025 saw the ZAR 507 million acquisition of Recharger, a prepaid electricity submetering and payments business with over 500,000 registered meters. This acquisition strategically positions Lesaka in the South African private utilities space, augmenting its Enterprise division's alternative payment offerings. Recharger's business model, with 95% annuity revenue contribution and over 70% free cash flow generation, provides a natural inflation hedge and a strong platform for cross-selling to tenants.

The proposed ZAR 1.1 billion acquisition of Bank Zero in June 2025 is anticipated to be a transformative event. This transaction, predominantly settled in Lesaka shares, will integrate Bank Zero's experienced team and modern technology stack. It is expected to reduce third-party dependencies, lower costs associated with bank sponsorship, and enable Lesaka to offer direct banking services to its merchant and enterprise customers. Management projects this acquisition could reduce gross debt by approximately ZAR 1 billion by holding consumer and merchant loan books within the bank, leading to lower funding costs and greater flexibility for book expansion.

Operationally, Lesaka has structured its business into three distinct, yet interconnected, divisions:

Merchant Division

The Merchant division, encompassing Connect, Kazang, and Adumo, serves over 100,000 merchants and micro-merchants. Its strategy focuses on bolstering unit economics, extracting efficiencies, and delivering a bundled offering. For FY2025, the division reported net revenue of ZAR 3 billion, a 46% year-on-year increase, and EBITDA of ZAR 657 million, up 20% year-on-year. Q4 FY2025 saw operating margins improve to 23% from 19% in Q3, reflecting early integration successes. Key operational metrics include 84,541 merchant acquiring points of presence by FY2025, with Kazang Pay devices growing 10% organically. Micro-merchant vault deposits surged 92% year-on-year to ZAR 13.8 billion, now representing over 10% of total vault throughput. Supplier-enabled payments also demonstrated excellent growth, increasing 57% year-on-year to ZAR 23.4 billion, driven by the efficiency benefits of digitizing business-to-business transactions.

Consumer Division

The Consumer division, centered around EasyPay Everywhere (EPE), EasyPay Loans, EasyPay Insurance, and Adumo Payouts, has been a standout performer. It targets approximately 12 million permanent grant recipients in South Africa, where it has increased its market share to 13% (approximately 1.5 million recipients) by Q3 2025. For FY2025, the Consumer business achieved ZAR 1.7 billion in net revenue, up 35% year-on-year, and ZAR 435 million in EBITDA, an 83% year-on-year increase. Q4 FY2025 EBITDA grew 106% year-on-year. Average Revenue Per User (ARPU) for permanent grant beneficiaries increased to ZAR 106 per month in Q3 2025, up from ZAR 90 a year prior. The gross lending book grew 82% to ZAR 996 million by year-end, with ZAR 2.5 billion originated in FY2025, while maintaining a stable loan loss ratio of approximately 6%. Active insurance policies increased 27% year-on-year to 527,000, with a high premium collection rate of 96% and a low lapse rate below 20%. The division plans to open 50 new branches and 50 branded service points in FY2026 to further expand its distribution.

Enterprise Division

The Enterprise division, constituted in FY2025 and including Recharger, focuses on large corporates, mobile network operators, banks, and municipalities. This was a "transition year" marked by closing noncore business units and investing in the platform. For FY2025, net revenue declined 9% to ZAR 651 million, and EBITDA decreased from ZAR 55 million to ZAR 24 million. However, Q4 FY2025 saw net revenue of ZAR 190 million and EBITDA of ZAR 15 million, representing a 66% year-on-year EBITDA growth. Excluding ZAR 17 million in reorganization costs, Q4 implied an EBITDA run rate of over ZAR 30 million per quarter. The division expanded ADP distribution channels by integrating with Standard Bank (SBKPY), Nedbank (NDBKY), and Shoprite (SRGHY). Utility payments throughput grew 9% year-on-year in Q3 2025, including Recharger's contribution. This segment is expected to become a meaningful contributor in FY2026, aiming for over 10% of total segment adjusted EBITDA.

Financial Performance and Liquidity

Lesaka has demonstrated a consistent ability to meet its profitability guidance, a testament to its disciplined execution. For the full fiscal year 2025, the company reported net revenue of ZAR 5.3 billion and EBITDA of ZAR 922 million, aligning with its guidance. Adjusted earnings for FY2025 saw a substantial increase to ZAR 186 million from ZAR 51 million in the prior year, resulting in adjusted earnings per share growing from ZAR 0.80 to ZAR 2.29. Q4 2025 alone saw net revenue climb 47% year-on-year to ZAR 1.5 billion, with group adjusted EBITDA up 61% to ZAR 306 million. Adjusted earnings for the quarter nearly tripled to ZAR 80 million, and adjusted earnings per share surged over 200% to ZAR 0.99.

Despite this strong operational performance, the GAAP net loss for Q4 2025 was impacted by several non-cash and one-off items. These included ZAR 239 million in transaction costs (ZAR 225 million from nonrecurring post-combination compensation for the Recharger acquisition), ZAR 46 million in accelerated amortization charges for intangible brand assets due to Merchant division unification (with a further ZAR 160 million expected in FY2026), and a ZAR 335 million non-cash goodwill impairment. This impairment, while significant, is an accounting adjustment at the individual cash-generating unit level and does not reflect a change in management's confidence in the strategic value of its acquisitions. A ZAR 101 million loss was also realized from the sale of MobiKwik. Partially offsetting these was a ZAR 210 million non-cash benefit from the reversal of deferred tax valuation allowance, reflecting improved profitability in the consumer lending entity.

From a liquidity standpoint, Lesaka is actively optimizing its capital structure. As of March 31, 2025, cash and cash equivalents stood at $71 million. In March 2025, the company completed a ZAR 4.5 billion debt refinancing, expanding its banking relationships to include RMB and Investec (IVTJF). This initiative reduced the weighted average cost of debt from approximately 12% to 10.7% per annum, translating to an annual saving of ZAR 52 million on ZAR 4 billion of gross debt. Gross debt increased to ZAR 4 billion by FY2025 due to acquisition funding, raising the net debt to group adjusted EBITDA ratio to 2.9x (12-month trailing). However, annualizing Q4 adjusted EBITDA brings this ratio to 2.2x, approaching the company's medium-term target of 2x. The ZAR 290 million proceeds from the MobiKwik stake sale in June 2025 were used to partially offset debt.

Capital expenditures for FY2025 totaled ZAR 378 million, with an expectation to remain below ZAR 400 million in FY2026, demonstrating disciplined investment despite anticipated EBITDA growth.

Competitive Positioning and Market Dynamics

Lesaka operates in a dynamic and competitive landscape, primarily against traditional banks and other fintech players in Southern Africa. While direct quantitative comparisons with all private competitors are challenging to ascertain, qualitative factors and Lesaka's strategic focus highlight its unique positioning.

Against Traditional Banks (e.g., Capitec Bank (CPTPF), Discovery Limited (DSYIF)): Lesaka differentiates itself by being customer-led, offering a comprehensive suite of integrated solutions tailored specifically for the unbanked and underbanked. Unlike banks constrained by legacy architecture and product-centric models, Lesaka's proprietary technology, such as its UEPS system and digital platforms, provides superior accessibility and efficiency in underserved areas. While Capitec excels in mass-market banking and Discovery in integrated financial services with wellness, Lesaka's focus on inclusive fintech allows it to exploit gaps in serving very low-income segments. This targeted approach, coupled with its dedicated distribution channels (branches, sales agents, USSD), provides a distinct value proposition that traditional banks struggle to replicate.

Against Global Payment Platforms (e.g., PayU, Mastercard (MA)): Lesaka competes in digital payments but with a localized, inclusive fintech edge. While PayU and Mastercard offer global scale and e-commerce integration, Lesaka's solutions are often more tailored to the specific offline and low-tech environments prevalent in its core markets. Its Prism Switch and HSM technologies offer robust security solutions that are competitive even against global standards, particularly for sensitive data processing. Lesaka's strength lies in its deep understanding of local market needs and its ability to build integrated ecosystems that address multiple pain points for merchants and consumers, rather than just offering a single payment product.

Lesaka's market share in the permanent SASSA grant recipient market reached 13% by Q3 2025, and its transactional accounts already exceed 10% market share. In the merchant acquiring space, its GAAP Pay card processing volumes grew 26% year-on-year, yet only 10% of GAAP sites currently use its integrated payment solution, compared to global benchmarks of over 50%, indicating a substantial cross-sell opportunity. The company's micro-merchant vault deposits, growing 92% year-on-year, are a key differentiator in informal markets. Lesaka's ADP product suite, with over 620 billers, offers a unique, hard-to-replicate position for enterprise clients.

The company's strategic response to competition involves continuous innovation, aggressive M&A to gain scale and product breadth, and a relentless focus on operational efficiency. It views other market participants as both competitors and potential collaborators, aiming to expand the overall market by providing better solutions rather than solely fighting over existing profit pools.

Outlook and Risk Assessment

Lesaka's outlook is robust, with management reaffirming strong guidance for both the current and upcoming fiscal years. For FY2025, the company projects net revenue between ZAR 5.2 billion and ZAR 5.6 billion (implying 35% year-on-year growth at the midpoint) and group adjusted EBITDA between ZAR 900 million and ZAR 1 billion (implying 37% year-on-year growth at the midpoint). Looking ahead to FY2026, Lesaka anticipates group adjusted EBITDA of ZAR 1.25 billion to ZAR 1.45 billion, representing a 42% year-on-year growth at the midpoint. Crucially, the company expects to deliver not only positive fundamental earnings per share but also positive net income on a U.S. GAAP basis in FY2026, with adjusted earnings per share projected to exceed ZAR 4.60, an increase of over 100% year-on-year. This guidance excludes the impact of the proposed Bank Zero acquisition, which is expected to further enhance financial performance post-completion.

The underlying assumptions for this optimistic outlook include sustained growth across all three divisions, with each pillar expected to grow at least north of 20%. In the Consumer division, continued customer base expansion and increased ARPU from cross-selling lending and insurance are key drivers. The Merchant division will focus on unit economics and efficiency gains from integration, with growth driven by merchant acquiring and software. The Enterprise division, following a year of rebuilding, is poised to become a material EBITDA contributor, fueled by strategic technology products and the electricity vertical.

However, investors should consider several pertinent risks. Lesaka identified material weaknesses in its internal control over financial reporting as of March 31, 2025, particularly in consumer lending, payroll, goodwill impairment, business combination accounting, revenue recognition, and journal entry processes. While remediation plans are underway, failure to effectively address these could lead to material misstatements or reporting failures. Integration risks associated with Adumo and Recharger, including cultural differences and retaining key personnel, could divert management attention and impact financial performance. Supply chain dependence on a limited number of third-party suppliers for hardware components poses a vulnerability to shortages and price fluctuations. Furthermore, Lesaka's reliance on third-party banking licenses for its EPE solution and compliance with evolving South African regulatory changes in the national payments system could lead to increased operating costs or limit business operations if arrangements terminate or new regulations are onerous. While management expresses confidence in its loan book quality, the macroeconomic environment in South Africa could still present challenges.

Conclusion

Lesaka Technologies is executing a bold and transformative strategy to capture the immense fintech opportunity in Southern Africa. By aggressively expanding its integrated multi-product platform through strategic acquisitions like Adumo, Recharger, and the proposed Bank Zero, the company is building a formidable competitive moat. Its customer-centric approach, underpinned by proprietary technologies and a relentless focus on operational efficiency, is driving significant market share gains and robust financial growth across its Merchant, Consumer, and Enterprise divisions. The consistent achievement of profitability guidance and the ambitious FY2026 outlook, projecting over 100% adjusted EPS growth and positive net income, underscore management's confidence in its execution capabilities. While challenges such as internal control remediation and integration complexities persist, Lesaka's strategic positioning, technological leadership, and alignment with the region's digitization trends make a compelling case for its long-term investment thesis. The company is not merely participating in the market; it is actively shaping the future of financial services for Southern Africa's underserved populations.